Correlation Between Fabrinet and RF Industries

Can any of the company-specific risk be diversified away by investing in both Fabrinet and RF Industries at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fabrinet and RF Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fabrinet and RF Industries, you can compare the effects of market volatilities on Fabrinet and RF Industries and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fabrinet with a short position of RF Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and RF Industries.

Diversification Opportunities for Fabrinet and RF Industries

0.41

Correlation Coefficient

Fabrinet  RF Industries

Very weak diversification

The 3 months correlation between Fabrinet and RFIL is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and RF Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RF Industries and Fabrinet is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fabrinet are associated (or correlated) with RF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RF Industries has no effect on the direction of Fabrinet i.e., Fabrinet and RF Industries go up and down completely randomly.

Pair Corralation between Fabrinet and RF Industries

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 1.28 times more return on investment than RF Industries. However, Fabrinet is 1.28 times more volatile than RF Industries. It trades about 0.07 of its potential returns per unit of risk. RF Industries is currently generating about 0.09 per unit of risk. If you would invest  17,848  in Fabrinet on September 8, 2024 and sell it today you would earn a total of  6,452  from holding Fabrinet or generate 36.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Fabrinet  vs.  RF Industries

Fabrinet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Fabrinet displayed solid returns over the last few months and may actually be approaching a breakup point.

RF Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RF Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward indicators, RF Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fabrinet and RF Industries

The main advantage of trading using opposite Fabrinet and RF Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, RF Industries can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in RF Industries will offset losses from the drop in RF Industries' long position.

The idea behind Fabrinet and RF Industries pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.